We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

Invocation of "The Rule" During Trade Secret Injunction Hearings

The Texas Supreme Court ruled today that a party accused of stealing trade secrets does not have an absolute right to be present in the courtroom for the entirety of a preliminary injunction hearing when the trade secrets at issue are discussed. In December 2014, MI-SWACO, a subsidiary of oil and gas services company Schlumberger sought a writ of mandamus after a trial court allowed the party alleged to have received or benefitted from misappropriated trade secrets to be in the courtroom during evidentiary proceedings discussing the trade secrets at issue.

The lawsuit was filed after National Oilwell Varco (NOV) hired Jeff Russo, one of MI-SWACO's business-development managers. MI-SWACO had asked the trial court to clear the courtroom of everyone except counsel, the experts, and individual defendant Russo. Following the presumption in favor of participation for due process purposes, the trial court rejected the request, stating that, "You sued them. They stay, period."

The Texas Supreme Court sided with MI-SWACO and held that trial "courts have discretion to exclude parties and their representatives in limited circumstances when countervailing interests overcome" the presumption in favor of participation. The Court further stated that the trial court should have considered the relative value of the alleged trade secrets, the degree of competitive harm the company could suffer if its alleged trade secrets were communicated and/or distributed to a competitor, and whether NOV's corporate representative acts as a competitive decision maker at the company. If the corporate representative did act in that capacity, the disclosure of the alleged trade secrets to him would "necessarily entail greater competitive harm" because he "could not resist acting on what he may learn," the Court stated.

While this case arose in Texas, it is likely to be cited in trade secret cases nationally. In each trade secret misappropriation case there is an inherent conflict between two fundamental interests: the importance of protecting from disclosure a company's trade secrets in which a company has invested significant time and resources versus the due process rights of persons and companies accused of misappropriation to confront their accusers. Although there is no blanket rule excluding from evidentiary hearings the corporate representatives and parties accused of misappropriation, this case makes clear that there is also no absolute right permitting full participation. During evidentiary hearings parties may and should ask the trial court to evaluate and balance all interests and consider whether certain individuals should be excluded. This added step may require trial courts to conduct two hearings: one to determine appropriate exclusions, and another to consider the relief requested.

Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

"Generally, this service is wonderful. I find that the employment law newsfeeds are extremely helpful and relevant. The quality of the articles is usually quite good. The website provides an avenue for quick research regarding various employment law issues."